Canada's exemption from tax on the sale of a principal
residence is not just for Canadian residents. Non-residents of
Canada enjoy one year of tax-exempt gains as a result of the
"one plus" rule.
While it may seem contradictory, Canadian residence is not a
condition of making a Canadian principal residence designation. A
property can be designated as a principal residence if it is
"ordinarily inhabited" in the year. "Ordinarily
inhabited" does not impose a minimum time requirement. If the
non-resident inhabits the property at all and the main reason for
owning the property is not to gain or produce income, such property
will be considered to be ordinarily inhabited by the non-resident.
Provided, then, that the non-resident has not already designated
another Canadian property as its principal residence for that year,
a principal residence designation may be made.
The question is whether one must then be a Canadian resident to
claim the corresponding deduction in respect of the designated
principal residence. On a casual reading, the answer to this
question is 'yes' since the years for which the deduction
is available are described as "one plus the number of taxation
years that end after the acquisition date for which the property
was the taxpayer's principal residence and during which the
taxpayer was resident in Canada". However, much depends
on the first two words of this excerpt. The Canadian residence
requirement qualifies only "the number of taxation years that
end after the acquisition date". Non-residents still have the
benefit of the "one plus".
What this means is that non-residents can deduct from their
taxable income that portion of the capital gain that
"one" is of the total number of years in which the
non-resident owned the property. If the non-resident buys and sells
the property in the same year then the full amount of the gain is
exempt. If the non-resident holds the property for ten years then
only one-tenth of the gain is exempt. Taking as an
example a 10% gain on a Toronto condo purchased two years
ago for $2,500,000.00, a principal residence designation is worth
approximately $30,000.00 in after tax dollars. More commonly, a 15%
gain on a Toronto condo purchased while under construction for
$800,000.00 and re-sold post completion within one year for a 15%
gain produces similar after tax savings
One must never assume the apparently obvious when tax planning
for non-residents. Tax savings can generally be found when one
knows where to look.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The CRA provides new housing rebates for individuals who have purchased or built a new house or have substantially renovated a house or made a major addition to a house who plan on living in it personally or letting a relative live there.
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